Capacity is crucial for an organization; every manager wants to perform well in this area. It is directly connected to the functional areas and production management. In this article, we will discuss various types of capacity.
Meaning of Capacity
Capacity may be defined as the ability of a business entity to produce something. It may also be explained as a facility’s productive capability rate. It is generally expressed in terms of the volume of output per period. The capacity of a business organization is an important aspect that keeps the capacity operation managers engaged all the time because of the following reasons:
1) An appropriate level of capacity is necessary to cope with the increasing demands of customers on time.
2) Certain significant business aspects, e.g., the cost-effectiveness of operations, the ease (or otherwise) of scheduling output, the costs of maintaining the facility, etc., get influenced by the capacity of the Organisation.
3) Capital investment of a higher order is required for the capacity building of a business organization.
While making decisions about capacity planning, the costs, as well as the revenue aspects of the planning, must be evaluated meticulously, especially in view of the fact that the planners seek an attractive return on investments. Another way of defining the capacity of a facility is ‘It is the maximum load, which the facility can manage during a specified period. Such load can be conveyed in terms of the level of inputs or outputs.
Main 5 Types of Capacity
There are several kinds of capacity, which have been briefly discussed in the following points:
1) Normal Capacity
Normal capacity refers to the maximum possible output under normal conditions (i.e. when the plants, machinery, and equipment operate for an average time to yield a normal mix of output). With this kind of capacity definition, it is common for a facility to operate with more than 100% capacity. It is the first and foremost types of capacity.
Mathematically, the following formula represents the capacity:
Capacity = (Maximum Production Rate/Hour) x (Number of Hours Worked/Period).
In the above formula,
Production Rate= Number of Units Produced/Amount of Time
2) Design Capacity
Design capacity is another name for the maximum capacity of an operation in a theoretical manner. The underlying presumption is that the operation is carried out at its full capacity without any downtime. According to this definition, the design capacity is the limit that cannot be exceeded in the normal course. It is one of the important types of capacity. However, there are a few exceptions to this; ‘crowded rush hour trains’ is a typical example, where the design capacity is exceeded routinely. The design capacity is hardly achieved in most of the cases due to barring such exceptional events. The managers endeavor to arrive at the level of effective capacity (which is below the design capacity).
3) Achieved Capacity
The actual output of an operation on any given day is likely to be below the effective capacity, which is because of the downtime caused by certain unforeseen and unplanned situations, e.g., machinery breakdown or staff shortages. Such actual outputs, which are less than the effective capacity, are termed as achieved capacity. Thus, we have two different yardsticks to measure the performance, viz. ‘capacity utilization’ and ‘capacity efficiency. While the ‘capacity utilization’ measures the achieved capacity, i.e. the actual output against the designed capacity, ‘capacity efficiency measures achieved capacity against the effective capacity. Both these measurements are expressed in percentage terms by applying the following formulae:
Capacity utilization = Actual output/design capacity.
Capacity efficiency = Actual output/effective capacity
4) System Capacity
The system capacity refers to the maximum number of outputs from a particular product or product mix that the production system is able to produce in a certain time. The production system consists of workers and machines. This is equal to or less than the design capacity of an individual part as the system may be of certain product mix, quality terms, and present amount of equipment and labor. System capacity is one of the types of capacity.
5) Effective Capacity
The potential capacity, which is pragmatic and achievable on any given day, is termed the effective capacity. It is less than the ideal capacity, i.e., more theoretical design capacity. No factory can operate all its machinery, equipment, etc., to its full design capacity due to various planned or unplanned and unforeseen situations, like normal breakdowns, routine maintenance, product changeovers, shortage of staff, etc. Effective capacity is calculated as types of capacity.
Effective capacity is, therefore, the achievable capacity, taking into consideration the product mix, method of scheduling, maintenance, standards of quality, limitations of resources, etc. The following formulae may be applied to arrive at effective capacity (utilization) and efficiency:
Effective Capacity (Utilisation)= Expected Capacity / Capacity
Efficiency= Actual Output / Effective Capacity
Efficiency is expressed in terms of percentage of the effective capacity. In a specific facility, the maximum usage of capacity is expressed with rated capacity.